The seven biggest myths of the upfront
Contrary to perception, it won't produce big surprises
April 4, 2013
This time of year a huge amount of anticipation begins to build up over the upfront, the annual spring event when the broadcast networks auction off the bulk of their ad time for the coming season.
For buyers and sellers, the upfront is dramatic and intense, once it breaks, as they haggle to cut the best deals for their client or network. Over just a few days, $8-plus billion in ad inventory will be sold.
Yet for all the drama and intensity for those involved, the upfront holds few actual surprises.
The outcome is totally predictable.
Barring a major economic meltdown, the broadcast networks can count on getting about the same increase in prices each year.
Going into the upfront, they’ll have a pretty good idea how much inventory they will sell and what it will fetch.
That’s because, for all the dramatic changes in media over the past decade, the TV business has changed little.
Ratings continue to fall as viewers shift to other options, such as cable, but they tend to fall by the same amount each season.
Advertisers continue to view TV as the most efficient way to reach people.
“There’s really no reason to expect a change in the foreseeable future,” said Brian Wieser, senior research analyst at Pivotal Research Group, in a Media Life webinar on the upfront last year.
Here are six other myths about the upfront:
The upfront is a good measure of the health of the media economy.
The hype and attention surrounding the upfront often makes it seem as though it’s an economic barometer for the entire media industry. It’s not.
The reality is that buyers, in committing client dollars, are gambling on where the economy will be next year, as the ad inventory they are bidding on is for the coming season, in some cases for nearly a year out.
A report from Credit Suisse found that there’s only a 36 percent correlation between upfront spending and growth in the U.S. ad economy.
CPM gains will vary greatly year to year.
Going into the upfront, analysts offer detailed breakdowns of how much CPMs will rise and fall for each network. Sometimes one’s up, sometimes another’s down, depending on the success of the previous year’s shows.
But overall, year in and year out, you can expect an average CPM gain of 8 percent for the Big Four networks combined. That’s because the forces that shape the upfront–demand on the part of advertisers, the overall economy, the amount of available inventory–tend to even each other out.
The rhetoric really matters.
The fun going into the upfront is the bluster on the part of buyers and sellers over who’s got the leverage this year and who’s going to whup butt at the negotiating table once the upfront gets underway.
It’s all just bluster.
Once the upfront does break, the horse-trading begins as buyers and sellers work at a lightning pace to reach deals that work for both buyer and seller. In a matter of days it’s over. There’s little time for posturing.
The upfront is the smartest way to sell advertising.
The casino expression “the house always wins” could well apply to the upfront. The networks have the clear advantage–and always have.
For one, they are asking buyers to gamble millions on shows that haven’t aired yet, based on little more than a pilot in most cases.
That’s like asking someone to buy a new car based on a picture in a magazine.
But more important, the networks have a limited number of shows they know that buyers must have because their clients are insisting on them. That puts the networks in a position of getting top prices for those shows and sticking those buyers with ad time on less-desired shows as part of the deal.
The newfront could hurt the upfront.
Not to discount the importance of digital video entirely, but it’s TV first, then every other media. The newfront, where digital video advertising is sold, is many years away from impacting broadcast.
“Even though internet has pretty broad reach, it’s not the same as TV,” Wieser said in the webinar. “The reach you get from TV is pretty significantly greater.”
The bigger the media agency, the more clout in upfront negotiations.
It is true that generally speaking a larger agency would stand to have more clout at the upfront than a small agency.
But the reality is that where it really counts–at the negotiating table–it’s not the size of the agency that matters but the marching orders it’s under from the client in terms of what shows are must-buys.
If it must have certain shows, it’s going to pay whatever the asking price happens to be.
The real clout belongs to buyer who can walk away if the price isn’t right. And he or she could be from a small agency far far away from Madison Avenue.
As Wieser explained in the webinar, “In all cases it’s the credible ability to walk away that drops pricing, not size.”
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